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SEC's New Investment Advisory Committee Is In Session

The SEC’s Investor Advisory Committee, which was formed to give investors a greater voice in the SEC, has “agreed upon an ambitious and wide-ranging agenda.” Or so says a press release issued by the SEC today.

At its first meeting Monday, the Investor Advisory Committee said it has “a broad spectrum” of discussion topics, including whether all financial intermediaries should be fiduciaries. In its release the Investor Advisor Committee says, “Many investors rely heavily on financial advisors for investment decisions, but may not understand the different fiduciary standards that apply to brokers and investment advisers.”

This magazine has long argued that the present patchwork of securities laws is archaic and confusing to retail investors. Why not just make any person who holds himself out to be a “financial advisor” actually act like one, that is, putting their clients’ interests first as the Investment Advisers Act of 1940? FAs who do not want to take fiduciary status should go back to calling themselves stockbrokers. In the latter’s case, they should own up to their status as the purveyor of financial products—and not positioning themselves as independent counselors who offer dispassionate investing advice.

The committee says it is studying disclosure, technology, “financial literacy,” and asset valuation. In today’s release, the committee asks, “Does the information that investors currently receive – both before making an investment decision and afterwards – meet their needs, and if not, what changes are necessary to ensure that investors have the information that they need, when they need it?” All I can say is that never before in the history of the world has more financial information been available to so many—and much of it is free. If retail investors are not financially literate, it is because they don’t want to be.

Here are more excerpts from today’s relase:

• Technology: Can technology be better used to improve the flow of information to and from investors?

• Financial Literacy: Should there be a distinction between “investor information” and “investor education,” and if so, what is that distinction? What is the role of “financial literacy,” and how can the SEC promote early education of these issues?

• Valuation: Do investors fully understand the role that underlying asset valuation plays in portfolio and fund valuation? For example, do investors in variable annuities understand that guaranteed minimum payouts do not necessarily hold if the underlying investments (mutual funds, etc.) decline by a certain amount? Do fixed income investors understand that high yield bond funds involve more risk than other fixed income investments, or that fixed income investments are typically much less liquid and, therefore more difficult to definitively value, than are equities?

“The formation of this Committee is a signal of the Commission’s renewed focus on investors and I am very pleased with the energy that the Committee members brought to the discussions,” noted SEC Commissioner Luis A. Aguilar, who also serves as the Committee’s sponsor and chief liaison to the Commission.

“The insights that the Committee members bring will be extremely important to the Commission as we move forward on our investor protection agenda,” added SEC Chairman Mary L. Schapiro.

Committee Co-Chairs Richard Hisey from AARP Financial and Hye-Won Choi from TIAA-CREF, in consultation with Commissioner Aguilar and the Commission’s Designated Federal Officer, will be forming several subcommittees to help organize the work and bring in additional external expertise.

Materials considered by the committee at its meeting are posted on the SEC’s Web site at

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